Over the last 10 years, the global tax and regulatory landscape has been changing at a pace rarely witnessed in the past. This rate of change is posing significant challenges for organizations’ tax and finance functions, which are called upon to transform their operations, while also managing potential budget cuts.
As organizations around the world work to navigate the rapidly changing global tax and regulatory landscape, further sweeping changes are on the way, as governments implement measures to prevent tax base erosion and profit shifting (BEPS), including the minimum corporate tax rate (BEPS 2.0 – Pillar II). Beyond that, a range of complex compliance issues are putting additional pressure on tax and finance functions, including the US alternative minimum corporate tax, green taxes, the EU Carbon Border Adjustment Mechanism, and the accelerating shift to e-invoicing. Businesses are also facing increasing ESG compliance and reporting requirements, that are putting additional pressure on the resources of tax and finance functions, as they evolve into key drivers of their organizations’ sustainability strategy. Should we also consider the challenges in leveraging new technologies and dealing with acute shortages of skilled talent, one can see why tax and finance functions are faced with the perfect storm.
EY’s latest Tax and Finance Operations Survey (TFO), recorded the views of 1,600 tax and finance directors and professionals from 32 countries and found that 96% of businesses surveyed are transforming their tax operating models, compared to 84% five years ago. This transformation is increasingly focused on leveraging technology at speed, innovating at scale, and placing their people at the center.
A total 90% of respondents said they expect moderate to significant changes to their business operations, as a result of the implementation of global minimum tax rules developed by the OECD/G20 Inclusive Framework, but only 30% surveyed had completed an assessment of its implications. Survey respondents also said there is growing pressure on tax and finance functions to provide the data companies need to meet their ESG and sustainability objectives and obligations.
At the same time, 48% of the survey’s participants said that the lack of a sustainable plan for data and technology is the biggest barrier to achieving their vision for a modern tax and finance function, with looming questions about how generative AI will affect tax compliance and administration. Moreover, 51% of respondents reported that they struggle with motivating talent and avoiding burnout. Encouragingly, our survey showed that organizations that have already undertaken transformations appear to be more confident about handling some of these challenges to come.
In this environment, co-sourcing with third-party vendors that invest in dedicated people, data capabilities and the technology needed to manage the complexities and pressures on modern tax and finance functions has emerged as a preferred choice for many businesses: 95% of respondents said they are more likely than not to co-source selected tax and finance activities—a 22-percentage point increase since 2020. This will allow employees to spend less time on routine and repetitive compliance activities and more time on strategy and other value-added work.
At a time when organizations seek to empower their tax and finance functions to deliver more strategic value and inform and influence decisionmaking across their businesses, a transformation based on the power of technology, innovation, people, and collaboration could open up new opportunities.
